3/1 ARM (3 year ARM)- the rate is fixed for a period of 3
years after which in the 4th year the loan becomes an adjustable rate mortgage
(ARM). The adjustable rate is tied to the 1-year treasury
index and is added to a
pre-determined margin (usually
between 2.25-3.0%) to arrive at your new monthly rate. Ask what the margin,
life cap and periodic caps of your
ARM will be in the 4th year. The loan is fully amortized (or paid off) in 30
years if the normal payment schedule is followed. (Also see
anatomy of an ARM for additional
information).

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